Auto Sales Plunge as Buyers Snub Incentives

Falling U.S. auto sales crashed in February, dimming hopes that the domestic industry might bounce back in the second half of this year.

Big rebates and low-interest financing failed to lure people back into car dealerships and showrooms during another month of layoffs, stock market declines and weakening home values. Automakers sold 688,909 new cars and trucks in February, a 41.4 percent decline from February 2008, according to preliminary data released yesterday by research firm Autodata.

General Motors reported that its sales slid 53 percent in February compared with the same month a year ago. Chrysler's dropped 44 percent. And Ford's sales tumbled 48 percent, despite its insistence that it needs no federal aid to stay afloat.

"We continue to operate in a very challenging economic and competitive environment," said Ken Czubay, Ford vice president for sales and marketing, in a conference call yesterday.

The steep drop puts additional pressure on GM and Chrysler, which are rapidly burning through cash while generating very little income from sales. After receiving $17.4 billion from the government in December, both companies say they will still be on the verge of bankruptcy unless they receive another cash infusion from the Treasury Department on March 31.

Yesterday, Michigan Gov. Jennifer M. Granholm (D) met with the Obama administration's auto task force to discuss the Detroit automakers' future. Advisers to GM's bondholder committee and the National Automobile Dealers Association plan to meet with members over the next couple days. The group also summoned Fiat chief executive Sergio Marchionne to Washington later this week to discuss the Italian automaker's potential alliance with Chrysler.

GM, meanwhile, is requesting financial support from the governments of Canada, Germany, Britain, Sweden and Thailand. Yet the Swedish government hasn't granted the request, forcing Saab to reorganize under court protection. And Germany is still evaluating GM's Opel unit.

At their present pace, sales this year would hit their lowest annual level since 1981, according to Autodata.

Some analysts had predicted that elements of the stimulus package would boost sales in the second half of this year. Congress included a measure allowing car buyers to deduct a purchase's sales tax from their income taxes. But other initiatives aimed at reviving auto sales were killed -- namely a "cash-for-clunkers" proposal that would have encouraged drivers to trade in vehicles for more fuel-efficient cars and trucks.

Mike DiGiovanni, GM's executive director of global market and industry analysis, said the sales-tax deduction should boost industry sales by 100,000 vehicles this year. But he also acknowledged "Americans are hunkering down, pulling in their horns trying to save, trying to protect themselves for uncertainties."

As the economic decline deepens, many consumers are just too reluctant to make such a big purchase right now, said Jim Hossack, an analyst with AutoPacific, an industry consulting firm.

"For most people in the new-vehicle market, it's really easy to defer the purchase -- defer a month, defer a year, defer five years," Hossack said.

Yet it hasn't stopped automakers from promoting deals. This month, Chrysler will put powerful Hemi engines -- a $1,200 value -- into new Dodge Rams at no charge.

A Hyundai Kia Automotive Group program allowing people to return cars free if they lose their jobs and can't make payments helped the South Korean company buck the trend of double-digit declines. In February, Hyundai posted a 1.5 percent decline and Kia reported a 0.4 percent gain.

For now, Ford has decided to focus on building the reputation of its brand rather than relying on big incentives to sell cars and trucks, Czubay said.

"We are zigging while some of our competitors are zagging in the incentive world," he said.